Is Der Spiegel right?

(Published on 21 November 2012) An article in Germany’s Der Spiegel the other week said that the bailout which Cyprus is currently negotiating with the troika (European Commission, European Central Bank and IMF) “might mainly benefit Russian oligarchs who have parked illegal money in bank accounts in Cyprus.”
It added that “Russian deposits there total $26 billion” and claims to have got its information from the German intelligence services.
There are plenty of political reasons why this report came out when it did—upcoming German elections, an opportunity to squeeze Cyprus on a tax system that sees German shipping and transport companies preferring to base themselves in Cyprus rather than in Germany, and perhaps an old bias not exclusive to Germany that assumes all Russians are crooks.
But the article also started with a glaring inaccuracy. The figure of $26 billion represents the entire non-resident deposit base of Cyprus, not just that held by Russians.
As of August 2012 deposits of non euro area non-residents amounted to EUR 21.0 bln, or around $26.8 bln at today’s exchange rate. This is where Der Spiegel, or the secret services, must have got the “$26 bln” figure from.
But not all of this deposit base is Russian. According to my reliable source, who unfortunately does not want to be identified, 40% of this non-resident deposit base is Russian, equivalent to around EUR 8.4 bln or $10.7 bln on deposit.
So Russian money accounts for just under 12% of the total deposit base of EUR 70.7 bln.
By contrast, the domestic deposit base of Cyprus is a much larger EUR 43.4 bln. Add the EUR 6.3 bln deposits by other euro area residents and the eurozone accounts for 70% of the deposit base of Cyprus.
How much of the money in Cyprus had been laundered? The truth is I haven’t a clue, which is why I can never answer diplomats’ or foreign journalists’ questions about it.
All I know is that Cyprus had a very bad reputation in the 1990s but cleaned up its act enough to get onto the OECD White List in April 2009.
This is why I hope that the secret services report is actually published and discussed openly in the German parliament as some have demanded.
Then we can see if there is any documentary substance to the accusations, or if it is based on a few coffees between diplomats and locally based individuals with an axe to grind.
But the greatest lesson we can learn from Der Spiegel is that the sins of the fathers will continue to be visited on the children for some time yet.
It doesn’t matter that there are 27,000 Russian citizens in the UK and only 8,164 in Cyprus according to the latest census. It doesn’t matter that Spain is offering residency (meaning eventual EU citizenship) to Chinese investors for EUR 160,000.
The rest of the world still thinks that Cyprus is crawling with men in big coats and metal suitcases. So we need to keep raising our standards to ensure that this image is consigned once and for all to the history books.
Fiona Mullen
Director, Sapienta Economics Ltd